Africa on the Move: Attracting Private Capital to a Changing Continent

Africa is on the move. From Mali to Uganda to South Africa, hope and real success are transforming a continent that a decade ago seemed on the brink of collapse. A new spirit of social and economic progress has energized much of the region, and gradually the rest of the world is beginning to take notice. Markets are opening, foreign investment is increasing, and economic performance is improving in a wide range of areas. Average growth of national income (GDP) for sub-Saharan Africa overall was about 5 percent in 1996, with more than half of the continent’s 48 countries growing at rates higher than population growth of 3 percent. These numbers translate into better lives for millions.

There are many reasons for the dramatic changes underway in much of Africa. Clearly, greater social stability and freedom from armed conflict are part of the answer. Central to this stability is the emergence of a new generation of African leaders: committed, qualified, and non-ideological. Once largely statist and corrupt, the new model of leadership is no-nonsense, accountable pragmatism.

One area where this pragmatism is most evident is the dramatically improved policy environment established by many African governments. These policies have, in a relatively short period of time, made Africa an increasingly attractive market to investors, both foreign and domestic. Côte d’Ivoire, Ghana, Uganda, and South Africa are now moving towards joining Thailand, Malaysia, and the Philippines as “hot” new markets for foreign capital. In a world economy where capital, production, and information are mobile, and investors live by diversification and identifying untapped markets, Africa is increasingly referred to as the “final frontier” of global investment.

This is a good sign for many African countries. But the continent has much to do before it achieves the broad-based economic growth that distinguishes the most dynamic parts of the developing world. The majority of work must still be done by Africans themselves. Governments must continue to set the pace for change by building on sound macro-economic performance, strengthening financial sectors, building physical infrastructure, and developing abundant human capital.

At the same time, the world must learn more about Africa. Too many investors know too little about the continent. Only gradually are many investors discovering what most have already learned in developing countries in other parts of the world: with sound economic policies, open markets, clear rules, fair laws, and healthy, educated people, economic growth and market dynamism is not only possible, but inevitable. And as is the case with other developing regions, the benefits of stability and economic growth are shared by everybody: The United States, for example, exported $5.4 billion worth of goods to sub-Saharan Africa in 1995, supporting 108,000 US jobs. ¹ This market strength is linked directly to improved policies implemented over the past five years. Between 1990 and 1995, US exports to Africa grew by $1.3 billion, an increase of 33 percent.

The purpose of this brief article is not to sell Africa’s investment potential. Rather, it is intended to shed much needed light on where Africa stands in an increasingly integrated global economy. Overall, Africa is a poor continent. Roughly 45 percent of its 580 million people live on less than a dollar a day, and economic development is in many places at its earliest stages. But the achievements of many African countries are firmly rooted and fast becoming part of the landscape. As in every other developing market, it is necessary to understand both the problems and the opportunities.

A New Developing World

The economic outlook for the developing world is in many ways brighter today than at any other time this century. Much of the growing optimism is a result of rapidly growing foreign investment in developing countries, and its positive effect on economic growth. Open the business page of any newspaper and the headlines announce a dynamic new emerging market mutual fund or mega-million dollar investment in some out of the way corner of Asia or Latin America. Indeed...